tbr 2q11 apple inc. report

TBR

TECHNOLOGY BUSINESS RESEARCH, INC.

Technology Business ResearchAccelerating Customer Success Through Business Research

TBR


Apple Inc.

COMPUTER BUSINESS QUARTERLYSM

Publish Date: August 9, 2011Authors: Ezra Gottheil ([email protected]), Computing Practice Senior Analyst and Beau Skonieczny, Computing Practice Research AnalystContent Editor: John Spooner, Computing Practice Director

Second Calendar Quarter 2011Third Fiscal Quarter 2011 Ended June 25, 2011

TBR OUTLOOK – POSITIVE TBR SCORE (0-10 SCALE)

6.71

mailto:[email protected]

TBR

Apple 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.3

Company Analysis3 TBR Position4 Executive Summary6 Strategy Overview8 Corporate SWOT Analysis9 Scenario Discussion12 Financial Model Strategy16 Go-to-Market & Product Strategies18 Alliance & Acquisition Strategies19 Geographic Overview20 Resource Management Strategy22 Organizational Structure

Company Data Models23 Income Statement 24 Balance Sheet25 Segment Revenue Model26 Unit Shipments & ASP Model27 Operating Expense Model28 Revenue by Customer Model29 PC Revenue Model30 Geographic Model31 Future Outlook Graph32 Appendix Graphs35 Alliances Table 36 Product Portfolio Table39 About TBR

Contents

TBR


TBR Position

Apple will continue to ride the wave of explosive growth for mobile devices to support record sales and profit expansionTBR Assessment Corporate Strategic ObjectivesRecord growth across the iPhone and iPad product lines continues to stem from Apple’s unique value proposition of simplifying the user experience while maintaining a consistent level of quality. As a result, Apple is increasingly able to penetrate the booming smartphone and tablet markets, despite the swarm of new entrants and cheaper Android devices, while maintaining record sales and profit performance.

Dominate public awareness with innovative products and astute marketing

Apple’s reputation for products and service drives growth and margins. The company continues to see margin benefits as a result of record iPhone sales, allowing it to achieve an operating margin expansion of 580 basis points year-to-year to 32.8%.

Maintain a premium market position in all product linesDespite lower-priced alternatives from competitors, customers continue to deplete iPad 2 stocks, helping Apple support its unrivaled lead in the tablet market. TBR believes the introduction of iOS 5 will help sustain demand levels and position Apple more competitively against rival tablets in terms of new and enhanced features.

Be a retail leader by leveraging Apple stores as a strategic differentiator, driving sales and margins while strengthening customer relationships

Apple is seeing positive results from its personal setup program, which accounted for over 2 million product setups in 2Q11. TBR believes Apple’s increased focus on the consumer buying experience at retail outlets will help promote sales to new customers, as evidenced by the trend in Mac sales in 2Q11, in which approximately 50% of unit sales were attributed to new users.

(In $ Billions) Consensus Guidance ActualRevenue 24.9$ $20.9 - $26.6 28.6$ Operating Income N/A N/A 9.4$ EPS 5.80$ $4.15 - $6.08 7.79$

(In $ Billions) TBR Estimate Consensus GuidanceRevenue 27.2$ 27.7$ 25.0$ Operating Income 8.6$ N/A N/AEPS N/A 6.42$ 5.50$ SOURCE: TBR AND APPLE

APPLE 2Q11 PERFORMANCE VS. EXPECTATIONS

APPLE 3Q11 GUIDANCE AND EXPECTATIONS

TBR


TBR assessment of Apple’s two-year strategic outlookKey TakeawaysFinancial: Continual product and service introductions, such as iOS 5, iCloud, OS X Lion, new Macbook Airs and the expected iPhone 5 will continue to fuel strong revenue expansion.Go to Market: An abundance of cash on hand will afford Apple the ability to develop new technologies internally and possibly look into acquiring niche companies to broaden its IP footprint.Resource: Retail store expansion, primarily in untapped markets such as Greater China, along with increased R&D investments, will continue to drive staff expansion on a global scale.

Strategic Outlook• Apple will seek to streamline interoperability between its

entire product portfolio to help attract customers to the Apple ecosystem. Key design features of both OS X Lion and iOS 5 seek to replicate a familiar and simplified user experience across all devices. iCloud will help drive cross- sales between Apple product lines to capitalize on a more seamless data management and device collaboration.

• Apple will continue to seek niche acquisitions of technology companies that hold unique IP to strengthen Apple’s patent library to help gain leverage in legal matters and facilitating product innovations. TBR believes Apple is in a strong position in the patent wars with its deep reserves of both internally developed and acquired patents, which was recently enhanced by the $2.4 billion purchase (Apple’s largest purchase ever) of Nortel’s patent portfolio.

• Apple will continue to push into emerging markets with lower-priced iPhones as more carriers are supported and smartphone demand expands. TBR believes Apple’s investment in Greater China will have the most dramatic improvement on international iPhone sales, as the market remains largely untapped.

Executive Summary

Cyclical product introductions will help Apple sustain industry-leading sales, supported by IP-backed acquisitions and emerging market expansion

$76,283 $90,000

$105,000

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APPLE'S ESTIMATED ANNUAL REVENUE

NOTE: Annual revenue and projections are for calendar 2010, 2011 and 2012, respectively.SOURCE: APPLE AND TBR

TBR

TBR


Apple’s rapid revenue expansion and overall financial performance continued to be fueled by iPhone and iPad sales in 2Q11

Despite Apple’s aggressive marketing and channel spending resulting in a decline in its go-to-market score, Apple improved its overall TBR score in 2Q11, supported by another record revenue quarter spurred by iPhone and iPad sales.

Key ■ Represents an area where Apple is currently challenged versus peers ■ Represents an area where Apple is outperforming its peers

■ Represents an area where Apple is neither significantly outperforming nor underperforming its peers

FINANCIAL METRICS TBR ScoreCompany

FigureAverage in

ClassStandard

Deviation/2Revenue (in $ Thousands) 7.91 28,571,000$ 13,785,795$ 5,087,163$

Gross Margin 5.48 41.7% 37.6% 8.7%

SG&A (% of revenue) 7.48 6.7% 18.2% 4.6%

Sales & Marketing (% of revenue) 7.21 5.0% 14.5% 4.3%

General & Admin (% of revenue) 7.09 1.7% 3.7% 1.0%

R&D (% of revenue) 6.64 2.2% 7.2% 3.1%

Total operating expenses (% of revenue) 7.65 8.9% 26.6% 6.7%

Operating Margin 8.97 32.8% 11.4% 5.4%

Net Margin 8.35 25.6% 8.1% 5.2%

Revenue Growth YTY 10.00 82.0% 14.6% 10.8%

Gross Profit YTY change 10.00 94.3% 20.9% 11.3%

SG&A YTY change 3.23 33.2% 13.7% 11.0%

Sales & Marketing YTY change 2.94 39.6% 16.2% 11.4%

General & Admin YTY change 4.33 17.1% 6.9% 15.1%

R&D YTY change 2.56 35.3% 12.9% 9.2%

Total operating expenses YTY change 5.03 10.6% 10.8% 8.7%

Operating income YTY change 5.09 121.5% 59.5% 718.5%

Net Income YTY change 4.71 124.7% 696.6% 1974.5%

TOTAL AVERAGE TBR SCORE 7.16

RESOURCE MANAGEMENT METRICSTBR Score

Company Figure

Average in Class

Standard Deviation/2

Days sales outstanding 8.41 19.2 46.5 8.0

Turns on inventory 10.00 73.2 19.7 7.7

Days inventory outstanding 7.55 5.0 35.1 11.8

Fixed asset turnover 4.95 17.6 18.2 12.7

Days cash outstanding 5.04 89.4 91.0 41.1

Total asset turnover 4.98 1.1 1.1 0.2

Debt/asset ratio 8.72 0.3 0.6 0.1

Current ratio 5.51 1.7 1.6 0.3

Return on assets 10.00 26.0% 8.3% 3.5%

Return on equity 5.59 40.5% 27.2% 22.3%

Headcount growth YTY 2.27 27.8% 7.9% 7.3%

Annual revenue per employee* 8.67 1,984,609$ 731,936$ 341,235$

Annual G&A expense* 5.69 215,296$ 297,542$ 119,244$

Annual R&D expense per developer* 3.82 448,867$ 329,908$ 101,229$

TOTAL AVERAGE TBR SCORE 7.14

GO-TO-MARKET METRICSTBR Score

Company Figure

Average in Class

Standard Deviation/2

Annual revenue per salesperson* 4.79 5,127,626$ 6,027,257$ 4,370,752$

Cost per revenue dollar 6.67 0.03$ 0.08$ 0.03$

Cost per margin dollar 7.59 0.07$ 0.23$ 0.06$

Channel expense as a % of S&M expense 3.07 38.8% 21.8% 8.8%

Marketing expense as a % of S&M expense 2.90 44.3% 26.2% 8.6%Annual sales expense per sales employee* 6.16 142,857$ 270,925$ 110,656$

Annual marketing expense per marketing employee* 6.93 143,779$ 286,636$ 74,126$

TOTAL AVERAGE TBR SCORE

*in $ thousands

5.36

2Q10 3Q10 4Q10 1Q11 2Q11

Financial Model Strategy: 6.34 6.17 6.45 6.97 7.16

Go-to-Market & Services Strategies: 5.93 5.95 5.63 5.61 5.36

Resource Management Strategy: 6.86 6.81 7.01 6.98 7.14

TOTAL AVERAGE TBR SCORE: 6.37 6.28 6.39 6.63 6.71

TBR SCORING SUMMARY: CALENDAR QUARTER RESULTS

Executive Summary

TBR


Function Key Strategies TBR Assessment

OverallLeverage cyclical product refreshes to sustain a strong growth trajectory and gain market share

►

Following the close of 2Q11, Apple launched a new line of Macbook Airs as well as OS X Lion, which TBR believes will help invigorate Mac Portable sales in 2H11.

While Apple has traditionally launched new iPhone models at its WWDC event, TBR expects it will shift to a fall release with the iPhone 5. TBR believes the release timing will be beneficial, allowing Apple to capitalize on consumers’ stronger seasonal demand in 2H11.

FinancialSupport margin improvement by focusing on sales of Apple’s most profitable product lines.

►

Apple improved margin performance in 2Q11, resulting from a stronger mix of iPhone sales, which are margin-accretive due to decreased manufacturing costs as process improvements have been made and component prices have fallen since the iPhone 4’s introduction.

Go to Market

Retail outlets help Apple build a more intimate, satisfactory customer experience and expand into new regions. Apple’s selective approach to software improvements allows for a more thought-out design to improve functionality and customer satisfaction.

►

With dedicated retail stores, Apple can retain more quality control of product distribution and presentation to consumers through service, support and even training such as its recently launched one-on-one setup program for new purchases.

While similar features and offerings have been introduced on competing devices, Apple’s planned release of iOS 5 and iCloud will help ensure greater customer satisfaction. TBR believes Apple’s more selective approach to software innovations allows the company to gauge which features and capabilities will be most impactful to Apple device users, rather than inundating users with features that could degrade a product’s ease of use.

Strategy Overview

Key: Working: Short-term impact expected on bottom / top line Not working: No major impact or differentiation expected

Apple continues to improve its brand presence through record iPhone sales and new product announcements …

TBR


Function Key Strategies TBR Assessment

Alliance & Acquisition Apple forms alliances and, to

a lesser degree, makes acquisitions to remain competitive, delivering comprehensive product ecosystems and serving customers.

►

In a new partnership with China Mobile, Apple will be better positioned to accelerate iPhone market penetration into Greater China’s nearly 1 billion mobile device users.

Apple will continue to target smaller-scale specialty firms to enhance its IP base and implement improved technologies into existing and future product designs.

Operations & Global Delivery Model

Apple works with suppliers and ODMs to deliver products, including a comparatively large number of customized components. Its large volumes help drive favorable deals.

►

Apple’s tight control of SKUs helps the sales and branding process and enables immediate product availability with minimal inventory.

Apple is able to maintain a competitive advantage in securing large quantities of components by leveraging its strong cash position to prepay major suppliers. TBR believes this has a two-fold benefit of drying up competitors’ supply levels and achieving volume discounts that translate into profit.

Resources & Investment

Apple maintains a strong cash position to remain nimble, and able to respond quickly to strategic opportunities such as international expansion.

►

While product introductions and R&D investments remain an integral component of Apple’s sales growth, the scale of any such investment is minimal when compared to its $76 billion cash and marketable security reserve.

Apple’s headcount additions were primarily a result of its global retail expansion efforts, which will continue to gain momentum, as Apple plans to reach 363 stores by September.

Strategy Overview

Key: Working: Short-term impact expected on bottom / top line Not working: No major impact or differentiation expected

… while using its stockpile of cash as leverage in large-scale supplier agreements and to produce higher-quality products

TBR


Corporate SWOT AnalysisStrengths• Apple continues to drive interoperability between

OS X and iOS devices to promote a simpler, hassle-free user experience.

• iPad remains unthreatened by tablet competitors, as they are unable to match the quality and ease-of-use of Apple’s device.

• The rapidly growing iPhone adoption rate continues to establish a broader base of dedicated repeat iPhone customers.

• The appeal of Apple retail stores generates high foot traffic to help promote sales and a closer customer connection.

Opportunities• New product offerings such as OS X Lion, iOS 5 and

iCloud will attract new customers. • Legal battles with Samsung could result in Apple seeking

less competitive suppliers. • China expansion will continue to offer new sources of

revenue for Apple. • Establish a more robust developer ecosystem through

enhanced legal protection stemming from Apple’s defense against patent sharks.

Weaknesses• CDMA network with Verizon limits U.S. customers

from international use• iPad lacks Flash web-browsing, 4G compatibility

and mini-USB ports• Low Asia Pacific revenue base despite recent

growth momentum• Prices for entry-level Macs are far higher than

competitors’ entry prices

Threats• The appeal of 4G speeds in major cities may cause

potential iPhone customers to switch to competing devices.

• Ongoing legal struggles with HTC, Samsung and others places pressure on Apple’s IP and could lead to delays in future product development.

• New tablet PC market entrants such as HP, Sony and Samsung will vie for a chunk of Apple’s market share.

Corporate SWOT Analysis

Apple continues to focus on device simplicity, interoperability and quality to support its record revenue performance in 2Q11

TBR


Scenario Discussion: Apple has been trying to fend off attacks from patent trolls preying on small iOS developers

Scenario SWOT AssessmentStrength: Significant cash base and legal fortitude, as well as a large number of patents to defend the developer community from patent trolls.Weakness: Limited insight into potential threats being placed on Apple developers.Opportunity: By guarding against patent attacks more effectively than Google, Apple will attract and retain more small programmers to the Apple development community than Android. Threat: Excessive harassment by patent trolls may deter developers from developing on Apple platforms.

Apple is creating a haven for developers by stepping up to protect against patent attacks • While Apple has been caught up in litigation of its own, the

company extended its legal battles by attempting to shield developers from attacks by patent sharks. Organizations like Lodsys are targeting small iOS and Mac developers by filing claims of patent infringement, bypassing Apple entirely. Apple has recognized the issue and quickly intervened by taking on Lodsys directly, as small iOS developers have little means to support such a case.

• To further ensure developers are not taken advantage of, Apple is taking steps to determine if application submissions are due to legal issues with additional survey questions, so as to provide assistance earlier on. TBR believes the safety net Apple provides against patent trolls presents a significant advantage in the developer community, which will help the company further expand its app store by attracting more quality developers.

• TBR believes Apple’s quick action instills a sense of safety amongst the company’s developer community. Beyond establishing a safe haven for developers, TBR believes developers on other platforms, such as Android, will be enticed to choose Apple as their main development platform, or even switch over entirely to avoid legal risk.

Scenario Discussion

Apple is leveraging its resources and patent library to create a safer environment for developers to create apps over competitor platforms

SOURCE: APPADVICE.COM

TBR


Scenario Discussion: OS X Lion represents a significant leap forward for Apple’s operating systemScenario SWOT AssessmentStrength: OS X has been redesigned for a more efficient and simpler user experience.Weakness: Windows market share still dwarfs the Mac installed base.Opportunity: Help promote Macbook Air sales with enhanced multi-touch capabilities.Threat: The anticipated launch of Windows 8 will result in some users holding out for the next Windows experience.

Apple has unleashed Lion, a step forward in simplifying the consumer PC experience • The launch of OS X Lion presents a significant leap in terms of

operating systems, particularly for the Macbook series. The aggressive adoption of many of the core UI components that have been responsible for the success of iOS will help Lion target a broader audience of Mac users.

• With the introduction of Lion, Apple will be implementing a number of familiar features the multitude of iOS users have seen before and use on a day-to-day basis. While the core file system remains intact, there are several visual differences and nuances that will help sell the new operating experience more effectively to Windows users who have been hesitant to make the switch.

• OS X Lion achieved over 1 million downloads in the first 24 hours of release, demonstrating a successful product launch despite being download-only.

• TBR expects the launch of iCloud will further enhance sales opportunities for Lion-based macs due to the seamless syncing that can take place between devices. This raises an increased value proposition for those who already own Apple products, as their experience will be improved with the ability to connect, share and sync files and media between multiple devices.

Scenario Discussion

The release of OS X Lion and iCloud will make for a more integrated computing experience that will cater to both Windows and iOS users

SOURCE: Gawker Media

TBR


Scenario Discussion: Apple’s new version of iOS aims to address many user interface complaints iOS device owners have had since its inceptionScenario SWOT AssessmentStrength: A simpler user interface provides a shorter learning curve for new users. Weakness: iOS lacks the user customization options of Android. Opportunity: Broader features will allow Apple to poach Android and Blackberry users more effectively to expand market share. Threat: An influx of Android devices continues to flood the market and lead in market share.

TBR believes Apple leverages a selective approach to software updates to polish and streamline functionality despite being later to the game than the competition• iOS will introduce a multitude of new and enhanced

features, such as iMessage, notification center and PC-free functionality. While many of these features have been implemented in devices by Google and RIM, TBR believes the added development and design time Apple has taken to fine-tune and fully integrate the iOS enhancements will result in a more streamlined and simpler user experience.

• TBR believes iOS 5 will help accelerate Apple’s mobile device market share expansion efforts by combining highly sought-after features, such as an improved notification system, with a minimalistic software design.

The improved messaging system in iOS 5, iMessage, will help court Blackberry users into purchasing an iPhone

One of the key services Blackberry has been able to leverage for success has been Blackberry Messenger (BBM). BBM is a popular proprietary instant messaging program that has been long-rumored to be made available on iOS. However, Apple beat RIM to the punch by offering a similar program to BBM in hopes to get Blackberry users to switch over.

Scenario Discussion

iOS 5 will help prevent existing customers from switching to alternative mobile devices with an improved feature set

SOURCE: ENGADGET

iOS 5 Main App Improvements

TBR


Product refreshes and new iPhone market penetration will continue to drive aggressive revenue expansion in 3Q11 and beyondRevenue Performance and Strategies

2Q11 Revenue: $28.57 billion, 82.0% YTY

• Revenue growth was driven by strong sales of the iPhone and iPad, with unit sales growing 142.2% and 182.8% year-to-year, respectively.

• iPad sales comprise 21.2% of Apple’s total revenues, up from 11.5% in 1Q11, driven by strong demand in mature markets for tablet PCs and accelerated restocking cycles for iPad 2 inventory.

• Mac sales growth started to slow during 2Q11; however, Apple continued to outpace the market growth rate for PC sales. TBR attributes the slower Mac sales to a lack of any major Macbook product upgrade, as consumers held out for new hardware and the release of OS X Lion.

Revenue and Growth Outlook

• The growth trend in Mac sales is expected to continue in 3Q11 with the introduction of new Macbook Airs and Mac Minis in July. TBR expects Mac sales to be further enhanced by back-to-school buying cycles.

• TBR believes iPad 2 sales will maintain their growth trajectory as Apple ramps inventory cycles and seasonal consumer demand improves in 2H11. We expect iPhone sales will taper off as pent-up demand builds for the next iteration of the iPhone; however, the lower-priced iPhone 3GS will sustain sales momentum by targeting the lower-end smartphone market, particularly in emerging regions.

Financial Model Strategy

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APPLE TWO-YEAR REVENUE AND GROWTH

Revenue Y/Y Growth RateSOURCE: TBR AND APPLE

TBR

$4,399 $5,105

$396 $517 $1,545 $1,325 $5,334

$13,311 $646

$696

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$1,571

$2,166

$6,046

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APPLE SEGMENT PERFORMANCE

iPad iTunes Software and Services iPhone iPod Peripherals ComputersSOURCE: TBR AND APPLE

TBR

TBR


Record iPhone sales helped offset ramping expenses from retail expansion and sales investments to achieve margin expansion in 2Q11

Cost & Margin Performance and Strategies

2Q11 Operating Expense: $2.54 billion

Cost of Services, Gross Profit

Gross margin increased 260 basis points year-to-year to 41.7% of revenue, resulting from stronger sales from the more profitable iPhone product segment, lower manufacturing costs and a relatively weak U.S. dollar.

SG&A

• SG&A expense rose 8.6% sequentially to $1.91 billion, as Apple continued to ramp up headcount, particularly with more aggressive retail expansion and R&D investments.

• Apple continued to increase sales through higher advertising and marketing expenditures, which TBR attributes to Apple building stronger awareness for the iPad 2.

Operating Margin and Outlook

• Operating margin increased from 27.0% in 2Q10 to 32.8% in 2Q11, as Apple’s revenue growth continued to outpace cost increases.

• As Apple introduces new product updates and continues to penetrate new markets with iPhone, TBR believes the company will be able to sustain its growth trend and maintain an operating margin above 35% into 2012.


40.9% 41.8% 40.9% 41.7%39.1% 36.9% 38.8% 36.7% 35.2%

27.0% 30.2% 30.1% 29.5%27.0% 26.8% 28.2% 26.4% 25.3%

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APPLE'S GROSS AND OPERATING PROFITAND PROJECTIONS

Gross Margin Operating MarginNOTE: Annual gross and operating profit and projections are for calendar 2009, 2010 and 2011, respectively.SOURCE: TBR AND APPLE

TBR

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APPLE PERCENT EXPENSE BY FUNCTION

S&M G&A R&DSOURCE: TBR AND APPLE

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Segment Revenue Performance and StrategiesSegment Financials

iPhone

More than 20.3 million units were sold as iPhone sales grew significantly in international markets, and the device saw stronger enterprise adoption. In addition, TBR believes the Verizon iPhone helped drive unit sales despite strong pent-up demand for the next iteration.

MacMac sales growth slowed due to some cannibalization from iPad sales and delayed consumer spending resulting from anticipation of a notebook product refresh.

iPadDespite pressure to replenish iPad 2 stocks to meet demand, Apple achieved another record iPad sales quarter, with unit sales growth of 183% year-to-year.

iPodiPod unit sales fell 20% year-to-year, as other iOS devices cannibalized iPod sales; however, Apple continues to maintain its market share lead in the U.S. for MP3 players.

PeripheralsPeripherals revenue rose 31% year-to-year to $517 million, driven by the success of the second-generation Apple TV; however, the company noted in 2Q11 earnings that Apple TV will remain a “hobby” for now.

$5,441 $6,009 $6,809 $6,299 $6,318

$4,925 $5,512 $9,464 $6,070 $8,942

$5,334 $8,822 $10,468 $12,298 $13,311

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APPLE SEGMENT CONTRIBUTIONS

iPhone iPod, iPad & iTunes PCs, SW, Svcs, & Peripherals

SOURCE: TBR AND APPLE

TBR


iPhone continues to fuel Apple’s record sales, with strong iPad demand and emerging market expansion supporting its growth trajectory

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APPLE PERCENT REVENUE BY SEGMENT

PCs, SW, Svcs, & Peripherals iPod, iPad & iTunes iPhoneSOURCE: TBR AND APPLE

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Customer Segment Revenue Performance and StrategiesCustomer Segment Financials

Consumer$22.72 billion(up 88.9% year-to-year)

• Consumer revenue was $22.71 billion in 2Q11, compared to $19.47 billion in 1Q11. Demand for iPhone and iPad continued to fuel consumer sales. TBR expects the next iteration of the iPhone, expected to launch later this year, will help sustain the consumer growth trend into 2012.

• TBR believes Apple’s recently launched “One-to-One” program helped promote consumer sales and increased satisfaction by providing a personalized setup service for purchases at Apple retail stores.

Commercial$5.85 billion (up 59.3% year-to-year)

• Professional customers continued to purchase more Mac products in 2Q11, with professional revenues at $3.47 billion, up from $1.98 billion in 1Q11. TBR believes Apple is gaining ground in the enterprise space by marketing the reliability and security of its Mac operating environment for business use.

• The iPhone and iPad are slowly catching on with private enterprise. TBR believes the release of iWork 11 on the iPhone will cater to the mobile needs of businesses looking to gain full access to documents on the go.

Consumer revenue growth outstripped Apple’s impressive commercial growth rate

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APPLE REVENUE BY PRODUCT LINE

iPhone iPods, iPads & iTunes Macs, etc.SOURCE: TBR AND APPLE

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Commercial20.49%

Consumer79.51%

2Q11 APPLE CONSUMER VS. COMMERCIAL PERCENT OF REVENUE

TBR


TBR


New Product Development: Apple plans to release iOS 5 and iCloud in the fall, expanding the capabilities of Apple mobile devices while leveraging a cloud solution that seamlessly integrates all Apple products for a more cohesive, flexible consumer experience. Key Takeaways• iOS 5 will address some of users’ top

concerns with iOS, such as an improved notification system and PC-free activation.

• iCloud will provide more streamlined and hassle-free syncing capabilities between devices to promote cross-sales of Macs.

• Apple is targeting an improved value proposition across all product lines with the anticipated release of iOS 5 and iCloud. By addressing nearly all the major concerns users have had with iOS through a new firmware iteration, Apple will be better-positioned to compete with Google Android phones and tablets. While Android has had a leg up on iOS in terms of syncing data to the cloud, PC or other devices, we believe iCloud will provide Apple with an advantage over the Android platform through enhanced media storage and streaming capabilities.

• Despite the possible introduction of a new iPhone this fall, TBR believes the combined feature enhancements of iCloud and iOS 5 will create a new wave of demand for existing iPhones, iPads and Macs.

• While the new iOS upgrade may cause iOS device owners to hold out longer to replace their hardware, the benefits iCloud offers will entice Apple customers to purchase Mac computers. We attribute the sales to consumers seeking a simplified computing experience across multiple devices while minimizing the time needed to manage data.

• TBR believes iCloud will see rapid adoption rates as a result of its appealing pricing, with the base 5 GB storage option provided for free, while an additional 10 GB, 20 GB and 50 GB of capacity will be provided for an annual fee of $20, $40 and $100, respectively.

Go-to-Market & Product Strategies

SOURCE: MACRUMORS

The introduction of iCloud and iOS 5 will help Apple vie for market share against feature-rich Android devices

Data accessibility through iCloud

TBR


New SMB Development: Apple will continue to expand in the SMB space by leveraging a more business-oriented approach to app development and expanding its retail and channel presence into new enterprise markets. Key Takeaways• Apple’s iPad and iPhone translate well to the

SMB community with the stability, security and ease-of-use of the iOS mobile operating system; however, Apple lags competitors in terms of mobile device features and capabilities.

• Apple leverages a bottom-up approach to SMB penetration by first targeting VSBs through retail stores and service centers to establish familiarity and acceptance of Apple products. Subsequently, Apple is able to gain ground in businesses of all sizes as users help define what they want to use in a work environment.

While Apple remains primarily a consumer-driven organization, it is gaining traction in the enterprise space by catering to the needs of business users.• iMessage, a new feature of iOS 5, will help promote enterprise

adoption of Apple devices by allowing iOS and Mac users to send text messages over Wi-Fi or 3G networks without tapping into a texting plan. TBR believes the added communication channels and more cost-effective use of intra-company communication will help drive increased iPhone and iPad sales for business use.

• Apple continues to reach out to the business community with the App store, particularly with the launch of iWork for iPhone. An increasing number of business applications, combined with the stability and security of iOS, is allowing Apple to more effectively target VSB and SMB users as more organizations invest in new smartphones and tablet PCs.

Apple continues to leverage channel partners and dedicated enterprise programs as an inlet into the business community.• Apple’s channel network continues to grow on a global scale,

allowing the organization to more quickly enter new enterprise markets with on-site presence for setup and support of Apple solutions.

• The Apple Joint Venture program provides various training, workshops and setup assistance to help migrate businesses to an Apple work environment.

Go-to-Market & Product Strategies – SMB Focus

iOS improvements will help Apple penetrate the SMB space and contend more effectively with devices that are more established in business arenas

$1,891 $2,528 $3,089 $2,980 $3,466

58.2% 60.3%69.4%

80.8% 83.3%

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20.0%

40.0%

60.0%

80.0%

100.0%

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$2,000

$4,000

$6,000

$8,000

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APPLE ENTEPRISE REVENUE AND Y-Y GROWTH

Enterprise Revenue Enterprise Growth Y-Y


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TBR


International expansion and possible supplier migration will help sustain Apple’s revenue and profit growth into 2012, as emerging market demand improves and supplier patent suits ensue.

Apple will gain traction in the world’s largest cell phone market by teaming with China Mobile to spark iPhone sales in Greater China • With nearly 1 billion mobile phone subscribers in China,

triple the U.S. total, the partnership with China Mobile will bolster Apple’s iPhone sales and provide opportunities to expand in adjacent markets across Greater China.

• TBR believes China will be a significant growth opportunity for Apple; however, China’s less strict copyright laws allow for a high degree of lower-priced knock-off products that will consume some of Apple’s regional market share.

The patent battles between Apple and Samsung could lead Apple to seek alternative component suppliers in 2012

Apple’s corporate focus on securing IP continues to be threatened by Samsung in recent product introductions. A transition to a new supplier that does not hold a competing product portfolio, such as Taiwan Semiconductor Manufacturing Company, would help Apple alleviate the legal pressures it is facing. Subsequently, Apple could focus more resources on product innovations rather than IP protection.

Alliance & Acquisition Strategies

Internal Development• iOS 5 will add over

200 new features to Apple’s mobile devices, helping capture increased market share from Google Android.

Alliances• The China Mobile alliance

will accelerate Apple’s presence in east Asia.

• A supplier shift from Samsung may prove beneficial for Apple.

Acquisitions• Apple is well-

positioned to pursue small- and large-scale acquisitions with over $28 billion in on-hand cash.

Apple will continue to enhance and secure its IP internally and through small-scale acquisitions in the midst of ongoing patent suits with Samsung.

Map of Alliance, Acquisition and Development Synergies

A stronger carrier presence in China will open new avenues for growth while Apple continues to seek ways to secure its valuable IP

TBR


Americas EMEA East Asia

Key Strategies

The Americas comprised 35.4% of Apple’s revenue, down from 39.7% in 2Q10. While the expansion of Apple products to the Verizon network and the introduction of the iPad 2 helped spur growth in the Americas, aggressive international expansion led to a lower share of Americas revenue.

EMEA sales grew 70.6% year-to-year in 2Q11, supported by carrier expansion and the introduction of the iPad 2. In addition, Apple opened four retail stores across France, the U.K. and Germany, which will help sustain robust growth in EMEA.

• Apple is leveraging carrier expansion as a medium for growth, particularly in Greater China, where Apple partnered with China Mobile to help support sales of $3.8 billion in 2Q11, six times higher than in 2Q10.

• Chinese manufacturing giant Hon Hai will open up to 500 retail stores selling Apple products in the next few years to bolster expansion in China.

Geographic Overview

Apple will continue to capitalize on iPhone growth opportunities in Greater China while broadening its mobile product reach into new marketsTBR Conclusions• The iPad 2 is available in over 30 countries, driving

revenue growth across the globe. • Deals with foreign carriers are allowing the iPhone to

further expand its market share, with Apple adding 42 new carriers and 15 new countries to its roster in 2Q11.

• The discounted iPhone 3GS pricing is helping Apple target the lower-end smartphone market in emerging regions. In addition, Apple will leverage expansion in China as a model for growth in other emerging markets.

$8,186 $12,650

$4,572

$7,694 $2,941

$8,228

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$10,000

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$25,000

$30,000

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In $

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APPLE REVENUE BY REGION

APAC EMEA AmericasSOURCE: TBR AND APPLE

TBR

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Resource Management Strategy

Resource Management Strategy• Ron Johnson, head of all Apple retail operations, will leave to

become CEO of JC Penny in November. While Johnson has been a key contributor to the success of Apple’s retail chain since its inception in 2001, TBR does not believe his departure will significantly impact the strategic direction of Apple’s retail segment. TBR believes Apple would benefit from an individual with demonstrated capabilities in globalization and international retail markets, particularly in Asia, where the company is focusing on aggressive expansion.

• Apple plans to have 363 retail locations around the world by the end of FY11 (ending in September), up from 327 at the close of 2Q11. Apple will also expand its retail presence in emerging markets through a partnership with Hon Hai that will establish 400-500 retail outlets across China, which TBR believes will operate similarly to Apple Stores.

Despite the expected loss of its head of retail, Apple will continue to expand its base of global retail outlets for new growth avenues

Apple Capital Investments• Steve Jobs proposed plans to develop a new Apple campus in

Cupertino, Calif. by 2015 that will support the company’s rapid expansion by accommodating up to 12,000 employees.

• In an effort to support the upcoming iCloud service, Apple is leveraging its 500,000-square-foot, $1 billion datacenter in Maiden, NC. The large-scale facility indicates Apple anticipates significant demand for its iCloud solution.

0%

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APPLE PROFITABILITY AND GROWTH

Gross Margin Operating Margin Net Margin Revenue Growth Year-to-Year


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APPLE EFFICIENCY METRICS (IN $'000'S)2Q10 2Q11

Revenue per Employee $1,497 $1,994 hS&M Employee Expense per head $151 $133 hR&D Employee Expense per head $404 $447 hG&A Expense per G&A head $241 $261 hRevenue per Salesperson $4,251 $6,699 hSOURCE: TBR AND APPLE

TBR

TBR


Headcount StrategiesHeadcount Drivers and Changes• Sales & Marketing – Sales & Marketing employee additions

expanded in line with Apple’s sales growth, which TBR expects to continue as Apple maintains its growth trajectory and introduces new products and services.

• General & Administrative – TBR believes Apple continued to grow G&A headcount in 2Q11 to support the organization’s continued operations as it expands into new regions.

• Research & Development – Increased R&D spending has led to an increase in R&D headcount, most likely in anticipation of the iPhone 5 and iPad 3 and development of iCloud.

• Service & Support – We estimate Service & Support headcount rose from 8,600 in 2Q10 to 10,100 in 2Q11 as Apple preps support staff for the fall launch of the iCloud service.

• Retail – Apple’s retail headcount grew to 30,600 full-time employees in 2Q11, supported by the opening of four new international retail locations.

Keep on the Radar Low-Cost Regions – Apple will continue to expand globally by pushing its retail segment into emerging regions such as China and LATAM.

Resource Management Strategy

Apple’s headcount grew in 2Q11, driven by retail expansion, sales investments and preparations for new service and product launches

- 10,000 20,000 30,000 40,000 50,000 60,000

$-

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$1,500,000

$2,000,000

$2,500,000

2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

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Revenue per Employee Average Headcount

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22,400 30,600

8,600

10,100 4,300

5,500 2,600

3,000 1,880

2,050 1,800

2,000

670

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Manufacturing and Other MarketingSales General and AdministrativeResearch and Development Service and SupportRetail


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TBR


Steve JobsCEO

Philip W. Schiller Senior Vice President

Worldwide Product Marketing

Timothy D. CookActing CEO

Chief Operating Officer

Jonathan Ive Senior Vice President Industrial Design

Bruce Sewell Senior Vice Presidentand General Counsel

Peter Oppenheimer Senior Vice Presidentand Chief Financial Officer

Ron Johnson Senior Vice President Retail

Craig FederighiSenior Vice President Software Engineering

Bob MansfieldSenior Vice PresidentMac Hardware Engineering

Scott ForstallSenior Vice PresidentiOS Software

Sina TamaddonSenior Vice President

Applications

Organizational Structure

Apple, Inc. Organizational Chart

Jeff Williams Senior Vice PresidentOperations

Ron Johnson will leave Apple in November, though no replacement has been named.

TBR


Appendix – Income StatementAPPLE, INC.Consolidated Statement of Income(in $ Thousands)

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11FISCAL QUARTER 3Q10 4Q10 1Q11 2Q11 3Q11 Est. 4Q11Net Sales $15,700,000 $20,343,000 $26,741,000 $24,667,000 $28,571,000 $27,200,000

Cost of Sales 9,564,000 12,832,000 16,443,000 14,449,000 16,649,000 15,975,840

Gross Profit 6,136,000 7,511,000 10,298,000 10,218,000 11,922,000 11,224,160

SG&A 1,438,000 1,571,000 1,896,000 1,763,000 1,915,000 2,042,300

R&D 464,000 494,000 575,000 581,000 628,000 617,500

Operating Income 4,234,000 5,446,000 7,827,000 7,874,000 9,379,000 8,564,360

Other Income (Expense) 58,000 14,000 136,000 26,000 172,000 50,000

EBITD 4,292,000 5,460,000 7,963,000 7,900,000 9,551,000 8,614,360

Income Taxes 1,039,000 1,153,000 1,959,000 1,913,000 2,243,000 2,067,446

Net Income $3,253,000 $4,307,000 $6,004,000 $5,987,000 $7,308,000 $6,546,914AS A PERCENTAGE OF REVENUENet Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of Sales 60.9% 63.1% 61.5% 58.6% 58.3% 58.7%

Gross Margin 39.1% 36.9% 38.5% 41.4% 41.7% 41.3%

SG&A 9.2% 7.7% 7.1% 7.1% 6.7% 7.5%

R&D 3.0% 2.4% 2.2% 2.4% 2.2% 2.3%

Operating Margin 27.0% 26.8% 29.3% 31.9% 32.8% 31.5%

Gain from Sale of Investment 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Other Income (Expense) 0.4% 0.1% 0.5% 0.1% 0.6% 0.2%

EBITD 27.3% 26.8% 29.8% 32.0% 33.4% 31.7%

Income Taxes 6.6% 5.7% 7.3% 7.8% 7.9% 7.6%

Net Margin 20.7% 21.2% 22.5% 24.3% 25.6% 24.1%YEAR-TO-YEAR CHANGENet Sales 61.3% 66.7% 70.5% 82.7% 82.0% 33.7%

Cost of Goods Sold 66.3% 80.7% 77.3% 83.5% 74.1% 24.5%

Gross Profit 54.1% 47.1% 60.6% 81.7% 94.3% 49.4%

SG&A 42.4% 47.8% 47.2% 44.5% 33.2% 30.0%

R&D and Engineering 36.1% 38.0% 44.5% 36.4% 35.3% 25.0%

Operating Income 60.9% 47.8% 65.7% 97.9% 121.5% 57.3%

Other, Net -3.3% -68.9% 312.1% -48.0% 196.6% 257.1%

EBITD 59.4% 46.4% 67.4% 96.1% 122.5% 57.8%

Income Taxes 20.3% -3.7% 42.0% 100.3% 115.9% 79.3%

Net Income 78.0% 70.1% 77.7% 94.8% 124.7% 52.0%SEQUENTIAL CHANGENet Sales 16.3% 29.6% 31.5% -7.8% 15.8% -4.8%

Cost of Goods Sold 21.5% 34.2% 28.1% -12.1% 15.2% -4.0%

Gross Profit 9.1% 22.4% 37.1% -0.8% 16.7% -5.9%

SG&A 17.9% 9.2% 20.7% -7.0% 8.6% 6.6%

R&D 8.9% 6.5% 16.4% 1.0% 8.1% -1.7%

Operating Income 6.4% 28.6% 43.7% 0.6% 19.1% -8.7%

Other, Net 16.0% -75.9% 871.4% -80.9% 561.5% -70.9%

EBITD 6.5% 27.2% 45.8% -0.8% 20.9% -9.8%

Income Taxes 8.8% 11.0% 69.9% -2.3% 17.3% -7.8%

Net Income 5.8% 32.4% 39.4% -0.3% 22.1% -10.4%


TBR

TBR


Appendix – Balance SheetAPPLE, INC.Consolidated Balance Sheets (in $ Thousands)

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11FISCAL QUARTER 3Q10 4Q10 1Q11 2Q11 3Q11ASSETSCurrent Assets

Cash & Short-term Investments 24,288,000$ 25,620,000$ 26,977,000$ 29,234,000$ 28,395,000$

Accounts Receivable 3,447,000 5,510,000 6,027,000 5,798,000 6,102,000

Inventory 942,000 1,051,000 885,000 930,000 889,000

Deferred Tax Assets 1,216,000 1,636,000 1,724,000 1,683,000 1,892,000

Other Current Assets 6,140,000 7,861,000 8,314,000 9,352,000 9,620,000

Total Current Assets 36,033,000 41,678,000 43,927,000 46,997,000 46,898,000

Long-term marketable securities 21,551,000 25,391,000 32,730,000 36,533,000 47,761,000

Property, Plant, Equip. (Net of Dep.) 3,990,000 4,768,000 5,868,000 6,241,000 6,749,000

Other, Net 3,151,000 3,346,000 4,217,000 5,133,000 5,350,000

Total Assets 64,725,000$ 75,183,000$ 86,742,000$ 94,904,000$ 106,758,000$ LIABILITIES AND EQUITYCurrent Liabilities

Accounts Payable 8,469,000 12,015,000 14,301,000 13,714,000 15,270,000

Accrued Expenses 4,452,000 5,723,000 5,953,000 7,022,000 7,597,000

Total Current Liabilities 15,612,000 20,722,000 23,795,000 24,327,000 26,859,000

Other non-current liabilities 4,981,000 5,531,000 7,065,000 7,870,000 9,149,000

Total Liabilities 21,614,000 27,392,000 32,076,000 33,427,000 37,415,000

Stockholders' Equity

Common Stock & PIC 10,133,000 10,668,000 11,502,000 12,326,000 12,715,000

Retained Earnings 32,870,000 37,169,000 43,050,000 49,025,000 56,239,000

Other 108,000 (46,000) 114,000 126,000 389,000

Total Stockholders' Equity 43,111,000 47,791,000 54,666,000 61,477,000 69,343,000

Total Liabilities & Equity 64,725,000$ 75,183,000$ 86,742,000$ 94,904,000$ 106,758,000$ FINANCIAL RATIOSCost of Sales 2.31 2.01 1.85 1.93 1.75

Days Sales Outstanding 19.76 24.38 20.28 21.15 19.22

Turns on Inventory 48.43 51.51 67.95 63.69 73.22

Days Inventory Outstanding 7.54 7.09 5.37 5.73 4.98

Fixed Asset Turnover 16.76 18.58 20.11 16.30 17.60

Days Cash Outstanding 139.23 113.35 90.79 106.66 89.45

Total Asset Turnover 1.03 1.16 1.32 1.09 1.13

Debt/Asset Ratio 0.26 0.29 0.29 0.27 0.26

Current Ratio 2.31 2.01 1.85 1.93 1.75

Return on Assets 21.9% 22.3% 23.5% 24.3% 26.0%

Return on Equity 32.7% 33.8% 36.0% 37.8% 40.5%

Employees 42,250 46,600 51,000 50,600 54,000

Revenue/Employee $1,496,926 $1,582,651 $1,715,671 $1,836,724 $1,984,609


TBR

TBR


Appendix – Segment Revenue

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11FISCAL QUARTER 3Q10 4Q10 1Q11 2Q11 3Q11 Est. 4Q11Total Revenue 15,700,000$ 20,343,000$ 26,741,000$ 24,667,000$ 28,571,000$ 27,200,000$

Gross Profit 6,136,000$ 7,511,000$ 10,298,000$ 10,218,000$ 11,922,000$ 11,224,160$

Gross Margin 39.1% 36.9% 38.5% 41.4% 41.7% 41.3%REVENUE BY PRODUCTNotebook 3,098,000$ 3,194,000$ 3,699,000$ 3,535,000$ 3,525,000$ 3,717,600$

MacBook Air & Pro 2,125,000$ 2,117,000$ 3,175,000$ 2,900,000$ 2,950,000$ 3,700,000$

MacBook 973,000$ 1,077,000$ 524,000$ 635,000$ 575,000$ 17,600$

Desktop 1,301,000$ 1,676,000$ 1,731,000$ 1,441,000$ 1,580,000$ 1,595,800$

Mac Pro 153,000$ 248,000$ 291,000$ 281,000$ 380,000$ 295,800$

iMac/Mac mini 1,075,000$ 1,350,000$ 1,400,000$ 1,150,000$ 1,200,000$ 1,300,000$

Total Computer 4,399,000$ 4,870,000$ 5,430,000$ 4,976,000$ 5,105,000$ 5,313,400$

Peripherals 396,000$ 477,000$ 593,000$ 580,000$ 517,000$ 495,000$

iPod 1,545,000$ 1,477,000$ 3,425,000$ 1,600,000$ 1,325,000$ 1,313,250$

iPhone 5,334,000$ 8,822,000$ 10,468,000$ 12,298,000$ 13,311,000$ 11,557,790$

iPad 2,166,000$ 2,792,000$ 4,608,000$ 2,836,000$ 6,046,000$ 6,106,460$

Total Hardware Revenue 13,840,000$ 18,438,000$ 24,524,000$ 22,290,000$ 26,304,000$ 24,785,900$

Software and Services 646,000$ 662,000$ 786,000$ 743,000$ 696,000$ 775,200$

iTunes Revenue 1,214,000$ 1,243,000$ 1,431,000$ 1,634,000$ 1,571,000$ 1,638,900$ PRODUCT MIX (PERCENTAGE OF TOTAL REVENUE)Notebook 19.7% 15.7% 13.8% 14.3% 12.3% 13.7%

MacBook Air & Pro 13.5% 10.4% 11.9% 11.8% 10.3% 13.6%

MacBook 6.2% 5.3% 2.0% 2.6% 2.0% 0.1%

Desktop 8.3% 8.2% 6.5% 5.8% 5.5% 5.9%

Mac Pro 1.0% 1.2% 1.1% 1.1% 1.3% 1.1%

iMac/Mac mini 6.8% 6.6% 5.2% 4.7% 4.2% 4.8%

Total Computer 28.0% 23.9% 20.3% 20.2% 17.9% 19.5%

Peripherals 2.5% 2.3% 2.2% 2.4% 1.8% 1.8%

iPod 9.8% 7.3% 12.8% 6.5% 4.6% 4.8%

iPhone 34.0% 43.4% 39.1% 49.9% 46.6% 42.5%

iPad 13.8% 13.7% 17.2% 11.5% 21.2% 22.5%

Total Hardware Revenue 88.2% 90.6% 91.7% 90.4% 92.1% 91.1%

Software and Services 4.1% 3.3% 2.9% 3.0% 2.4% 2.9%

iTunes Revenue 7.7% 6.1% 5.4% 6.6% 5.5% 6.0%

Total Non HW Revenue 11.8% 9.4% 8.3% 9.6% 7.9% 8.9%YEAR-TO-YEAR REVENUE GROWTHNotebook 39.5% 10.5% 34.1% 58.7% 13.8% 16.4%

MacBook Air & Pro 25.0% -4.9% 47.7% 89.5% 38.8% 74.8%

MacBook 87.1% 61.7% -13.8% -9.0% -40.9% -98.4%

Desktop 14.7% 53.9% 2.3% -5.9% 21.4% -4.8%

Mac Pro -45.2% -14.2% 44.1% 73.5% 148.4% 19.3%

iMac/Mac mini 34.4% 82.4% -1.8% -11.5% 11.6% -3.7%

Total Computer 31.2% 22.4% 22.0% 32.3% 16.0% 9.1%

Peripherals 16.5% 22.0% 26.4% 22.9% 30.6% 3.8%

iPod 3.6% -5.5% 1.0% -14.0% -14.2% -11.1%

iPhone 74.3% 91.5% 87.7% 125.9% 149.6% 31.0%

iPad 0.0% 0.0% 0.0% 0.0% 179.1% 118.7%

Total Hardware Revenue 67.8% 74.9% 76.6% 93.2% 90.1% 34.4%

Software and Services 21.9% 2.0% 24.6% 17.2% 7.7% 17.1%

iTunes Revenue 26.7% 22.1% 22.9% 23.1% 29.4% 31.9%

Total Non HW Revenue 25.0% 14.3% 23.5% 21.2% 21.9% 26.7%

SOURCE: TBR ESTIMATES AND APPLE

APPLE REVENUE MODEL TBR

TBR


Appendix – Units and ASPs

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11FISCAL QUARTER 3Q10 4Q10 1Q11 2Q11 3Q11 Est. 4Q11UNIT SHIPMENTSNotebook 2,468,000 2,643,000 2,907,000 2,751,000 2,800,000 2,900,000

MacBook Air & Pro 1,556,000 1,582,000 2,395,000 2,330,000 2,380,000 2,650,000

MacBook 912,000 1,061,000 512,000 421,000 420,000 250,000

Desktop 1,004,000 1,242,000 1,227,000 1,009,000 1,005,000 1,175,000

Mac Pro 48,500 77,600 85,000 72,000 70,900 75,000

iMac/Mac mini 942,000 1,150,000 1,135,000 935,000 910,000 1,100,000

Total Computer 3,472,000 3,885,000 4,134,000 3,760,000 3,805,000 4,075,000

iPod 9,406,000 9,051,000 19,446,000 9,017,000 8,500,000 8,500,000

iPhone 8,398,000 14,102,000 16,235,000 18,647,000 18,100,000 18,100,000

iPad 3,270,000 4,188,000 7,331,000 4,694,000 4,950,000 4,950,000

YEAR-TO-YEAR UNIT GROWTHNotebook 40.7% 16.6% 36.6% 53.2% 13.5% 9.7%

MacBook Air & Pro 23.9% -3.1% 53.7% 104.9% 53.0% 67.5%

MacBook 83.1% 67.4% -10.2% -36.1% -53.9% -76.4%

Desktop 18.3% 57.8% -0.6% -12.0% 0.1% -5.4%

Mac Pro -50.8% -24.4% 55.1% 42.0% 46.2% -3.4%

iMac/Mac mini 27.3% 70.9% -2.7% -13.7% -3.4% -4.3%

Total Computer 33.4% 27.3% 23.0% 27.8% 9.6% 4.9%

iPod -7.9% -11.1% -7.3% -17.2% -9.6% -6.1%

iPhone 61.3% 91.4% 85.8% 113.1% 115.5% 28.4%

AVERAGE SELLING PRICENotebook 1,255$ 1,208$ 1,272$ 1,285$ 1,259$ 1,282$

MacBook Air & Pro 1,366$ 1,338$ 1,326$ 1,245$ 1,239$ 1,396$

MacBook 1,067$ 1,015$ 1,023$ 1,508$ 1,369$ 70$

Desktop 1,296$ 1,349$ 1,411$ 1,428$ 1,572$ 1,358$

Mac Pro 3,155$ 3,196$ 3,424$ 3,903$ 5,360$ 3,944$

iMac/Mac mini 1,141$ 1,174$ 1,233$ 1,230$ 1,319$ 1,182$

Blended Computer ASP 1,267$ 1,254$ 1,313$ 1,323$ 1,342$ 1,304$

iPod 164$ 163$ 176$ 177$ 156$ 155$

iPhone 635$ 626$ 645$ 660$ 735$ 639$

iPad 662$ 667$ 629$ 604$ 1,221$ 1,234$

Y/Y GROWTH - AVERAGE SELLING PRICENotebook -0.8% -5.3% -1.8% 3.6% 0.3% 6.1%

Desktop -3.0% -2.5% 2.9% 6.9% 21.3% 0.6%

Blended Computer ASP -1.7% -3.8% -0.8% 3.6% 5.9% 4.0%

iPod 12.5% 6.3% 8.9% 3.8% -5.1% -5.3%


APPLE'S UNIT SHIPMENTS AND ASPs TBR

TBR


Appendix – Operating Expense

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11

FISCAL QUARTER 3Q10 4Q10 1Q11 2Q11 3Q11 Est. 4Q11

Total Revenue 15,700,000$ 20,343,000$ 26,741,000$ 24,667,000$ 28,571,000$ 27,200,000$

SG&A Expense 1,438,000$ 1,571,000$ 1,896,000$ 1,763,000$ 1,915,000$ 2,042,300$

Sales & Marketing Expense 1,028,000$ 1,136,000$ 1,421,000$ 1,288,000$ 1,435,000$ 1,562,299$

General & Administrative Expense 410,000$ 435,000$ 475,000$ 475,000$ 480,000$ 480,001$

Research and Development 464,000$ 494,000$ 575,000$ 581,000$ 628,000$ 617,500$

SALES & MARKETING EXPENSE BREAKOUT

Sales Expense 550,000$ 625,000$ 695,000$ 675,000$ 800,000$ 675,001$

Sales Salary and Commissions 369,440$ 400,000$ 435,000$ 422,500$ 242,960$ 42,000$

Partner and Channel Spending 180,560$ 225,000$ 260,000$ 252,500$ 557,040$ 633,001$

Marketing Spending 478,000$ 511,000$ 726,000$ 613,000$ 635,000$ 887,298$

Marketing Salary/expenses 64,350$ 66,288$ 68,225$ 70,163$ 72,100$ 73,219$

Advertising & Programs 413,650$ 444,713$ 657,775$ 542,838$ 562,900$ 1,539,079$

Total Sales & Marketing Expense 1,028,000$ 1,136,000$ 1,421,000$ 1,288,000$ 1,435,000$ 1,562,299$

SPENDING AS A PERCENTAGE OF REVENUE

Total SG&A Expense 9.2% 7.7% 7.1% 7.1% 6.7% 7.5%

Sales & Marketing Expense 6.5% 5.6% 5.3% 5.2% 5.0% 5.7%

Sales Expense 3.5% 3.1% 2.6% 2.7% 2.8% 2.5%

Partner and Channel Spending 1.2% 1.1% 1.0% 1.0% 1.9% 2.3%

Marketing Spending 3.0% 2.5% 2.7% 2.5% 2.2% 3.3%

Advertising 2.6% 2.2% 2.5% 2.2% 2.0% 5.7%

General & Administrative 2.6% 2.1% 1.8% 1.9% 1.7% 1.8%

Research and Development 3.0% 2.4% 2.2% 2.4% 2.2% 2.3%

YEAR-TO-YEAR GROWTH

Total SG&A Expense 42.4% 47.8% 47.2% 44.5% 33.2% 30.0%

Sales & Marketing Expense 53.8% 60.3% 58.4% 55.2% 39.6% 37.5%

General & Administrative 20.1% 22.8% 21.5% 21.8% 17.1% 10.3%

Research and Development 36.1% 38.0% 44.5% 36.4% 35.3% 25.0%

CORPORATEWIDE HEADCOUNT

Non-Retail 19,850 20,100 21,000 22,100 23,400 24,125

Sales 1,880 1,920 2,000 2,025 2,050 2,100

Marketing 1,800 1,850 1,900 1,950 2,000 2,025

General and Administrative 2,600 2,630 2,700 2,900 3,000 3,050

Research and Development 4,300 4,600 5,000 5,200 5,500 5,900

Service and Support 8,600 8,400 8,700 9,300 10,100 10,300

Manufacturing, Distribution, and Other 670 700 700 725 750 750

Retail 22,400 26,500 30,000 28,500 30,600 31,500

Total Employees 42,250 46,600 51,000 50,600 54,000 55,625

SOURCE: APPLE AND TBR ESTIMATES

APPLE OPEX MODEL (IN $ THOUSANDS EXCEPT HEADCOUNT) TBR

TBR


Appendix – Revenue by Customer Segment

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11REVENUE (IN $ THOUSANDS)Total $15,700,000 $20,343,000 $26,741,000 $24,667,000 $28,571,000 $27,200,000

Consumer 12,025,470$ 15,683,980$ 21,324,445$ 19,473,115$ 22,717,185$ 21,627,816$

Education 1,783,185$ 2,131,010$ 2,327,465$ 2,213,445$ 2,387,815$ 2,260,244$

Education: K-12 620,550$ 707,260$ 677,155$ 574,295$ 562,925$ 548,970$

Education: University 1,162,635$ 1,423,750$ 1,650,310$ 1,639,150$ 1,824,890$ 1,711,274$

Professional 1,891,345$ 2,528,010$ 3,089,090$ 2,980,440$ 3,466,000$ 3,311,940$

Creative Professional 908,710$ 1,138,055$ 1,323,110$ 1,264,340$ 1,423,720$ 1,392,093$

Business 982,635$ 1,389,955$ 1,765,980$ 1,716,100$ 2,042,280$ 1,919,848$

Total 15,700,000$ 20,343,000$ 26,741,000$ 24,667,000$ 28,571,000$ 27,200,000$ PERCENTAGE OF TOTAL REVENUEConsumer 76.6% 77.1% 79.7% 78.9% 79.5% 79.5%

Education 11.4% 10.5% 8.7% 9.0% 8.4% 8.3%

Education: K-12 4.0% 3.5% 2.5% 2.3% 2.0% 2.0%

Education: University 7.4% 7.0% 6.2% 6.6% 6.4% 6.3%

Professional 12.0% 12.4% 11.6% 12.1% 12.1% 12.2%

Creative Professional 5.8% 5.6% 4.9% 5.1% 5.0% 5.1%

Business 6.3% 6.8% 6.6% 7.0% 7.1% 7.1%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Note: Includes revenue from all sources and product groups.SOURCE: TBR ESTIMATES

APPLE REVENUE BY CUSTOMER SEGMENT TBR

TBR


Appendix – PC Revenue

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11REVENUE (IN $ THOUSANDS)Total $15,700,000 $20,343,000 $26,741,000 $24,667,000 $28,571,000 $27,200,000

PC Revenue $4,399,000 $4,870,000 $5,430,000 $4,976,000 $5,105,000 $5,313,400

Consumer $2,625,560 $2,879,330 $3,470,395 $3,187,905 $3,251,275 $3,454,376

Education $1,056,765 $1,169,530 $1,079,605 $1,016,245 $1,019,225 $979,306

Education: K-12 $464,250 $536,410 $470,305 $375,845 $380,975 $366,440

Education: University $592,515 $633,120 $609,300 $640,400 $638,250 $612,866

Professional $716,675 $821,140 $880,000 $771,850 $834,500 $879,718

Creative Professional $478,690 $571,005 $574,720 $554,620 $610,100 $615,844

Business $237,985 $250,135 $305,280 $217,230 $224,400 $263,874

Total $4,399,000 $4,870,000 $5,430,000 $4,976,000 $5,105,000 $5,313,400

PERCENTAGE OF PC REVENUEConsumer 59.7% 59.1% 63.9% 64.1% 63.7% 65.0%

Education 24.0% 24.0% 19.9% 20.4% 20.0% 18.4%

Education: K-12 10.6% 11.0% 8.7% 7.6% 7.5% 6.9%


Professional 16.3% 16.9% 16.2% 15.5% 16.3% 16.6%


Business 5.4% 5.1% 5.6% 4.4% 4.4% 5.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

PC PERCENTAGE OF TOTAL REVENUEConsumer 16.7% 14.2% 13.0% 12.9% 11.4% 12.7%

Education 6.7% 5.7% 4.0% 4.1% 3.6% 3.6%

Education: K-12 3.0% 2.6% 1.8% 1.5% 1.3% 1.3%


Professional 4.6% 4.0% 3.3% 3.1% 2.9% 3.2%


Business 1.5% 1.2% 1.1% 0.9% 0.8% 1.0%

Total 28.0% 23.9% 20.3% 20.2% 17.9% 19.5%

YEAR-TO-YEAR GROWTHConsumer 32.9% 29.4% 32.4% 38.8% 23.8% 20.0%

Education 30.8% 12.7% 1.9% 25.3% -3.6% -16.3%

Education: K-12 45.4% 24.7% 5.1% 22.3% -17.9% -31.7%

Education: University 21.2% 4.1% -0.4% 27.1% 7.7% -3.2%

Professional 25.5% 14.5% 14.4% 18.3% 16.4% 7.1%


Business 24.9% -4.0% 16.4% 24.4% -5.7% 5.5%

Total 31.2% 22.4% 22.0% 32.3% 16.0% 9.1%

SOURCE: TBR ESTIMATES

APPLE PC REVENUE BY CUSTOMER SEGMENT TBR

TBR


Appendix – Geography

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11FISCAL QUARTER 3Q10 4Q10 1Q11 2Q11 3Q11 Est. 4Q11UNIT SHIPMENTSAmericas 1,358,000 1,460,000 1,360,000 1,217,000 1,487,000 1,550,000

EMEA 914,000 978,000 1,245,000 995,000 922,000 950,000

Japan 129,000 118,000 162,000 155,000 150,000 160,000

Asia Pacific 394,000 455,000 516,000 596,000 620,000 650,000

Retail 677,000 874,000 851,000 797,000 768,000 825,000

Total 3,472,000 3,885,000 4,134,000 3,760,000 3,947,000 4,135,000

APPLE REVENUE BY GEOGRAPHY (IN $ THOUSANDS)Americas 6,227,000$ 7,186,000$ 9,218,000$ 9,323,000$ 10,126,000$ 10,336,000$

EMEA 4,160,000$ 5,458,000$ 7,256,000$ 6,027,000$ 7,098,000$ 6,800,000$

Japan 910,000$ 1,401,000$ 1,433,000$ 1,383,000$ 1,510,000$ 1,360,000$

Asia Pacific 1,825,000$ 2,732,000$ 4,987,000$ 4,743,000$ 6,332,000$ 5,168,000$

Retail 2,578,000$ 3,566,000$ 3,847,000$ 3,191,000$ 3,505,000$ 3,536,000$

Total 15,700,000$ 20,343,000$ 26,741,000$ 24,667,000$ 28,571,000$ 27,200,000$

PERCENTAGE OF TOTAL REVENUEAmericas 39.7% 35.3% 34.5% 37.8% 35.4% 38.0%

EMEA 26.5% 26.8% 27.1% 24.4% 24.8% 25.0%

Japan 5.8% 6.9% 5.4% 5.6% 5.3% 5.0%

Asia Pacific 11.6% 13.4% 18.6% 19.2% 22.2% 19.0%

Retail 16.4% 17.5% 14.4% 12.9% 12.3% 13.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

YEAR-TO-YEAR CHANGE IN REVENUEAmericas 39.2% 37.2% 51.3% 86.7% 62.6% 43.8%

EMEA 66.1% 68.7% 44.4% 48.8% 70.6% 24.6%

Japan 62.5% 121.0% 83.0% 55.9% 65.9% -2.9%

Asia Pacific 159.6% 157.5% 175.1% 151.5% 247.0% 89.2%

Retail 72.8% 74.7% 95.2% 89.6% 36.0% -0.8%

Total 61.3% 66.7% 70.5% 82.7% 82.0% 33.7%


APPLE REVENUE AND SHIPMENTS BY GEOGRAPHY TBR

TBR


Appendix – Apple Future Outlook Graph

1Q11

2Q113Q11 Est.

1.002.003.004.005.006.007.008.009.00

10.00

0% 10% 20% 30% 40% 50% 60% 70% 80%CBQ

Cor

pora

te S

core

Quarterly Revenue Growth Year-to-year

2Q11 CBQ VENDOR POSITION AND PROJECTION: APPLE

Trailing 12-Month Average Growth for Multi-Platform Vendors = 14.6%


TBR

TBR


Appendix – Graphs

3,4723,885 4,134

3,760 3,8054,075

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0

1,000

2,000

3,000

4,000

5,000

2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11

In $

Tho

usan

ds

MAC UNIT GROWTH YEAR-TO-YEAR

Units Shipped Growth in Unit ShipmentsSOURCE: TBR AND APPLE

TBR

61.3% 66.7% 70.5%82.7% 82.0%

0%

20%

40%

60%

80%

100%

2Q10 3Q10 4Q10 1Q11 2Q11

APPLE REVENUE GROWTH YEAR-TO-YEAR

Apple CBQ AverageSOURCE: TBR AND APPLE

TBR

39.1% 36.9% 38.5%41.4% 41.7%

0%

10%

20%

30%

40%

50%

2Q10 3Q10 4Q10 1Q11 2Q11

APPLE GROSS MARGIN

Apple CBQ AverageSOURCE: TBR AND APPLE

TBR

27.0% 26.8% 29.3%31.9% 32.8%

0%

10%

20%

30%

40%

2Q10 3Q10 4Q10 1Q11 2Q11

APPLE OPERATING MARGIN

Apple CBQ Average


TBR


TBR

TBR


Appendix – Graphs

$1,497 $1,583 $1,716 $1,837 $1,985

$-

$500

$1,000

$1,500

$2,000

$2,500

2Q10 3Q10 4Q10 1Q11 2Q11

In $

Tho

usan

ds

APPLE ANNUAL REVENUE PER EMPLOYEE

Apple CBQ Average


TBR

$241 $234 $228 $220 $215

$-

$50

$100

$150

$200

$250

$300

2Q10 3Q10 4Q10 1Q11 2Q11

In $

Tho

usan

ds

APPLE ANNUAL G&A EXPENSE PER G&A EMPLOYEE

Apple CBQ Average


TBR

$404 $420 $435 $443 $449

$-

$100

$200

$300

$400

$500

2Q10 3Q10 4Q10 1Q11 2Q11

In $

Tho

usan

ds

APPLE ANNUAL R&D EXPENSE PER DEVELOPER

Apple CBQ Average


TBR

TBR


Appendix – Graphs

48.4351.51

67.95 63.6973.22

0.00

20.00

40.00

60.00

80.00

2Q10 3Q10 4Q10 1Q11 2Q11

Turn

s pe

r Yea

r

APPLE INVENTORY TURNS

APPLE CBQ AVERAGE


TBR

139.23113.35

90.79106.66

89.45

0.00

50.00

100.00

150.00

200.00

2Q10 3Q10 4Q10 1Q11 2Q11N

umbe

r of D

ays

APPLE DAYS CASH OUTSTANDING

APPLE CBQ AVERAGESOURCE: TBR AND APPLE

TBR

TBR


Apple AlliancesCompany Details

China Mobile China Mobile will be distributing the iPhone in China.

Random House, Inc. Random House, Inc. has made its full catalog of 17,000 e-books available on Apple’s iBookstore.

Intel Apple transitioned to Intel microprocessors in 2006. Intel provides significant technical assistance to Apple. The Thunderbolt I/O was developed from Intel Labs.

NVIDIA Provides chipset with integral GPU for notebooks.

Hon Hai Hon Hai manufactures Apple’s iPods and iPhones.

HBO Premium HBO TV shows are available through iTunes.

Major movie studios Movies are available for download rental the same day as DVD availability.

AT&T AT&T is a wireless operator for iPhones in the United States.

Verizon Verizon is a wireless operator for iPhones in the United States.

Best Buy Apple Mac “store-within-store” sections are becoming available in an increasing number of Best Buy locations.

Disney Apple offers exclusive Disney content through iTunes.

Fox Entertainment Group Apple and FEG make hit Fox television programs available for purchase.

Appendix – Apple Retail Partnerships

TBR


Apple’s Product Portfolio: Mac Portables

Price and Functionality

MacBook Pro 13-inchCreative pro, video editing and desktop

publishing notebook;starting price:

$1,199 for 2.3 GHz, Dual-Core$1,499 for 2.7 GHz, Dual-Core

Full

size

Thin

-ligh

t

MacBook ProCreative pro, video editing and desktop

publishing notebook;starting price:

$1,799 for 15-inch 2.0 GHz, Quad-Core$2,199 for 15-inch 2.2 GHz, Quad-Core $2,499 for 17-inch 2.2 GHz, Quad-Core

MacBook Air 13-InchUltra-light notebook for travel;

starting price:$1,299 for 13-inch 1.7 GHz

Mod

el L

ineu

pAppendix – Apple Product Lineup

MacBook Air 11-Inch Ultra-light notebook for travel;

starting price:$999 for 11-inch 1.6 GHz

TBR


Mod

el L

ineu

p


Mac miniValue consumer desktop;

starting price:$699 for 2.3 GHz : 500 GB$799 for 2.5 GHz : 500 GB

$999 for 2.3 GHZ: With Lion Server

iMacAll-in-one consumer and professional desktop;

starting price:$1,199-$1,499 for 21.5-inch 2.5 GHz – 2.7GHz Quad-core

$1,699 for 27-inch 2.7 GHz Quad-Core$1,999 for 27-inch 3.1GHz Quad-Core

Perf

orm

ance

Entr

yVa

lue/

Mai

nstr

eam

Mac ProHigh-end desktop for creative professionals,

video editing and desktop publishing;starting price:

$2,499 for 2.8 GHz Quad-Core$3,499 for 2 x 2.4GHz Quad-Core (8-Core)$4,999 for 2 x 2.66 GHz 6-Core (12-Core)

$2,999 for 2.8 GHz Quad-Core Server Version

Appendix – Apple Product Lineup

Apple’s Product Portfolio: Desktops and Servers

TBR


Mod

el L

ineu

p


Smal

l-For

mH

igh-

Capa

city

Web

/App

Pla

tfor

m/F

lash

iPod Shuffle Aimed at flash market; starting price:

$49 for 2 GB

iPod NanoFlash music and video player;

starting price:$149 for 8 GB

$179 for 16 GB

iPod ClassicHigh-capacity music and video player;


iPod TouchPortable web/app platform;


$299 for 32 GB$399 for 64 GB

iPhone 4Smartphone & web/app

platform;starting price (after subsidy):

$199 for 16 GB$299 for 32 GB

iPhone 3GSSmartphone and web/app platform;

starting price (after subsidy):$49 for 8 GB

iPadPortable web/app tablet;

starting price:$499 for 16 GB$599 for 32 GB$699 for 64 GB

iPad 3GPortable web/app tablet;

starting price:$629 for 16 GB$729 for 32 GB$829 for 64 GB

Apple TVOnline movie and TV show

rentals and streaming of online and PC content;starting price:

$99

Appendix – Apple Product Lineup

Apple’s Product Portfolio: iOS Devices and iPods

TBR


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Technology Business Research is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, networking equipment, wireless, portal and professional services vendors.

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